WITH the Legal Professional (Amendment) Bill passed in Parliament recently, Malaysian lawyers finally joined their counterparts in other professions to embrace the inevitability of liberalisation in the services sector.
The bill allows foreign law firms to practise in Malaysia as a qualified foreign law firm or to partner with a Malaysian counterpart as an international partnership. Foreign lawyers will also be permitted to practise in Malaysia under the two new entities or with a Malaysian firm. However, foreign law firms and foreign lawyers will be limited to practising within prescribed areas of the law only.
In order for Asean, as an economic bloc to compete for trade and investments on the global platform, member countries have committed to increase intra-Asean connectivity. Individually, each member state has neither the software nor the hardware to compete against the powerhouse economies of China, India and Australia. However, as a single entity with a combined population of 600 million people and a combined GDP of more than US$1.8 trillion (RM5.6 trillion), Asean has a strong hand to compete if investors perceive the region as a collective force.
Liberalisation of the services sector is indispensible for attracting foreign direct investment (FDI) and promoting the transfer of knowledge. The growth of borderless markets and cross-border trade has changed the scope and character of services to an international scale. Institutional connectivity, of which services liberalisation is a key driver, is necessary to facilitate any successful development and execution of transactions by the private sector. Asean has long recognised the importance of having a common framework for liberalisation of key services such as transport (shipping, aviation, logistics), banking, accounting and legal practices.
Under the the Asean Framework of Services (AFAS) in 1995, member countries undertook commitments to liberalise their services by substantially eliminating restrictions to trade in services and worked towards developing a common services framework. Seven sectors were selected for services liberalisation, including business services, which cover legal services.
Unfortunately, unlike technical and transport services, the rhetoric to open up the legal services sector has not been matched in reality with little progress so far. While five Asean countries — Cambodia, Indonesia, Malaysia, Thailand and Vietnam — have pledged "assurance" on legal services, these are not fully transparent and are tied up with many conditions or restrictions.
The liberalisation of legal services faces a number of unique structural impediments, which hinder integration within the region. Within Asean, each member country is governed by a different legal and constitutional system. Malaysia and Singapore, for instance, are governed by common law principles, whereas Cambodia and Indonesia follow the French civil code and the Roman-Dutch civil system respectively.
Law students are not taught the basic principles on how to bridge the differences. It is ironic that law students in Malaysia and Singapore, in order to gain their law degrees from the UK, are more familiar with the EC laws than Asean laws. Qualification requirements also pose a barrier to export and trade in legal services, especially for the practice of host country law.
Legal education differs from country to country, which in turn results in a disparity of skill between each member country. In most instances the differences are so significant that regulators require foreign qualified lawyers to requalify in order to be able to practise. National treatment limitation is another significant barrier. This includes but is not limited to restrictions on partnership with local professionals such as equity restrictions, restrictions on the use of international and foreign firm names and residency requirements.
Another major challenge is that the legal sector in Asean faces inward looking and exclusive regulation by national professional bodies among many member states. As of yet, there has been no significant driving force to effect any forms of real liberalisation. Local lawyers are reluctant to give up their monopoly on lucrative legal services and are apprehensive at the thought of having to compete with well resourced international law firms if the legal market is opened up.
The spectre of loss of "national sovereignty" is often raised in response to dealing with any proposal for intra-Asean connectivity, the purpose of which is supposed to give lawyers the freedom to practise law in all Asean member countries. Nevertheless, there are useful lessons from the experience of China and Singapore in successfully opening their legal markets without sacrificing the interests of local lawyers.
In China, foreign law firms are not allowed to practise local law, but are licensed to advise in areas of law which facilitate the flow of trade and investments. Domestic firms are allowed to form collaborations and strategic alliances with foreign firms to facilitate knowledge sharing and best practices.
This delicate balance has succeeded in attracting leading foreign firms to expand into China and provide value-add services to multinational corporations and major Chinese companies competing globally. Chinese law firms are now able to service major Chinese corporations that are expanding globally. These firms have opened branch offices in financial centres like London, New York and Singapore.
On the other hand, Singapore adopted an incremental approach to the liberalisation of legal services. It started by allowing foreign firms to practise foreign law and then allowed them to form joint ventures with local firms. Over the last two years, the introduction of new reform now permits foreign law firms to practise Singapore law. However, certain areas of law are being fenced for local lawyers only. This approach has allowed Singapore to attract more than 100 foreign law firms, which work closely with other professions and foreign companies to drive the growth of the country as a regional financial and legal centre.
This is an opportune time for Malaysian lawyers to be proactive and capitalise on opportunities from the liberalisation of their services. The global economic centre of gravity has shifted from the West to the East. Global companies are following the flow of trade and investments to Asia and Asean. Rising Asian economies led by China and India are driving growth globally while intra-Asean trade is expanding rapidly.
Most of the leading companies in Southeast Asia have strong balance sheets with less leverage and continue to enjoy high levels of liquidity. As a result, they are able to focus on growth, both organically as well as through merger and acquisition activities in the region. Witness the recent flurry of acquisitions and expansion by banks such as CIMB Group, Maybank and DBS as they expand their footprints in the region.
Similarly, the region's stock exchanges have announced plans to market themselves jointly as an Asean brand to woo international investors. The Big 4 accounting firms are integrating their management and operations to operate as regional entities to service global clients in the region.
To take advantage of the current rise of Asia, including the Asean region, lawyers in Malaysia should embrace liberalisation by investing in international networking and strategic alliances with foreign partners. Liberalisation provides opportunities for Malaysian lawyers to adopt best practices and technology from foreign firms and expand their knowledge and practices beyond Malaysian laws.
They must invest and learn the skill set and experience required to advise on cross-border transactions and projects undertaken on a regional basis. They should also consider embarking on regional expansions together with their clients.
Finally, they must change their mindset on the "market" for their services beyond the shores of Malaysia. This way, they will be equipped to compete on the regional playing field with the foreign lawyers actively engaged in advising companies doing business in the region.
There is no reason why Malaysian lawyers cannot emulate the successful transformation of Malaysian banks like Maybank and CIMB into Asean banks. It is time to see the emergence of Asean law firms led by Malaysian lawyers.
Chew Seng Kok is the regional managing partner of ZICOlaw, an integrated network of legal and related service providers in the Asean region. Tengku Azura Safiyuddeen is a lawyer with Zaid Ibrahim & Co. This story appeared in The Edge on July 23, 2012.